MTA Fires Subway Tunnel Contractor

The Metropolitan Transportation Authority fired the company digging subway tunnels for the Hollywood portion of the problem-plagued $5.8-billion Metro Rail project Thursday--a move that will further increase the skyrocketing costs of the project and delay construction for months. MTA Chief Executive Officer Franklin E. White said project officials had lost confidence in Shea-Kiewit-Kenny, the target of a federal criminal investigation for its performance on the subway project.

On Thursday, the MTA ordered the company to stop work immediately and clear out of the Hollywood construction site, which has been plagued by everything from road sinkages to serious safety violations.

The MTA decision to terminate the construction company’s $178.6-million contract came just days after federal agents conducted searches of Shea-Kiewit-Kenny’s offices in both Hollywood and Walnut, looking for evidence that the contractor may have lied to county officials about materials it used in building the subway tunnels, according to a warrant unsealed Wednesday.

“The performance of the contractor has become suspect, so we believe it is in the best interest of the people of this county to terminate this contract,” said Stanley Phernambucq, the MTA’s new chief of subway construction. White added: “This has been an accumulation of concerns.”

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But in a letter to White, the contractor’s managing partner, John F. Shea, said he considered the firing a breach of contract and demanded that “the dispute created by this termination notice be heard and resolved by the Disputes Review Board as provided by the contract.”

Company spokesman Patrick Duffy said in a written statement the firm is confident that the review board will determine “that the termination is without basis or foundation.”

Duffy said the firm has been forced to “stand by and listen to unfounded allegations of malperformance leveled, mostly anonymously, against it” for over a year. The company’s contract with the MTA prohibited it from answering the allegation, Duffy said.

Now that the contract has been terminated, he said, Shea-Kiewit-Kenny will answer the allegations through him.

The termination caps an extraordinarily troubled period of subway construction stretching over the last two years. The transit agency’s rail construction staff had gambled that by consolidating construction of the 12 miles of twin tunnels connecting Wilshire and Hollywood boulevards, the project would proceed more swiftly and efficiently.

That hope was shattered almost as soon as digging began:

* In July, 1993, shortly after lowering one of its tunneling machines into the earth near Hollywood Boulevard and Vermont Avenue, Shea-Kiewit-Kenny workers were forced back to the surface by a flood of underground water. The contractor blamed the problem on the transit agency’s alleged failure to properly forecast ground conditions. Six months later, after having pumped the equivalent of a small town’s water supply into storm drains, the digging resumed.

* In March, 1994, a locomotive careened out of control, injuring a tunnel superintendent and two other workers. The mishap prompted officials to shut down work on the twin tunnels because of the contractor’s “serious safety violations.”

* In July, 1994, two subway workers were critically injured and a third was seriously hurt when a welding-related explosion rocked a tunnel beneath Vermont and 6th Street.

* In August, 1994, a portion of Hollywood Boulevard above the subway tunnel construction began to sink--eventually dropping 10 inches--in part because of substandard wooden wedges used in the tunnel’s support system, officials said.

* In October, 1994, Shea-Kiewit-Kenny was fined $447,125 by state and federal inspectors for safety violations found after the July explosion. That fine brought to $1 million the penalties levied against the company last year. Federal officials also took the extraordinary step of withholding $1.6 billion for future subway work until MTA officials could demonstrate that they were able to properly manage the project. The funding was reinstated five weeks later.

* On June 22, a 70-by-70-foot sinkhole developed in front of the main staging area for Metro Rail subway construction on Hollywood Boulevard, shutting down construction for more than a week.

* And on Tuesday, federal and MTA agents converged on the Shea-Kiewit-Kenny field office at Barnsdall Park, near the sinkhole. As part of the criminal investigation, they also raided three other company offices. According to an affidavit filed for the search warrant, records seized in raids on four of the firm’s offices will show that the company decided to use substandard materials in tunnel construction.

MTA officials said they considered terminating Shea-Kiewit-Kenny’s contact about a year ago, but they decided to hold off because the move would cost taxpayers between $85 million and $90 million. “We felt it was not a good business decision,” said MTA spokeswoman Andrea Green.

But with the problems continuing, the MTA decided it had better act regardless of the expense. The MTA accountants on Thursday were still trying to figure out how much it will cost to hire another contractor to finish the project, which is about 80% completed.

They said they will pursue legal action against Shea-Kiewit-Kenny to try to recover some of the $145.1 million the company has been paid on the project.

“This is a matter that the lawyers will be wrestling with, as you might imagine,” White said. The work is projected to be 50% to 70% over budget.

On Thursday, State Sen. Tom Hayden (D-Santa Monica), a vocal critic of the subway project, called the termination “welcome and overdue.”

Hayden, a member of the Senate Transportation Committee, called the contractor’s activities “a brewing scandal of unknown proportions. To think that Shea is some kind of isolated crooked actor here is just plain wrong. Severing ties with him is like firing the third base coach if your team is not scoring enough runs. There are going to be more shoes to drop here.”

State Sen. Richard G. Polanco (D-Los Angeles), whose district includes the area where tunnels are being built, also praised the MTA decision. He said he has been demanding since last September that the MTA “hold these folks accountable.” MTA engineers who approved the substitution of wooden wedges in the tunnel construction also “need to be looked at,” Polanco said.

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“There is criminal negligence here,” he said. “To replace steel struts with wooden wedges at the crown of the tunnel is absolutely unacceptable.”

Los Angeles City Councilwoman Jackie Goldberg, who represents Hollywood, said she is “overjoyed by this development because somebody has to take responsibility. If SKK did the things being alleged, more should happen than just ending their contract. They should be held liable if these things turn out to be true. It calls into question why it took so long for this to happen.”

The termination of Shea-Kiewit-Kenny marks the first time that a prime heavy-construction contractor has been dismissed during the eight-year span of the $5.8-billion Los Angeles subway project. The contract accounts for the largest piece of the project--both in dollars and in area affected.

MTA officials say they believe, even with a delay that is expected to last months, that they can still meet the 1998 deadline for completing the Hollywood stretch of the subway. They were trying to decide Thursday whether to open the project to competitive bids, or immediately bring in another contractor on an emergency basis.

“We do believe that we have enough contractors in the area working on MTA projects that can stand up and come in on an emergency basis,” Phernambucq said.

In the wake of the termination, the companies that compose Shea-Kiewit-Kenny, a joint venture of three major construction contractors, could face exclusion from all federally funded transportation projects.

The termination of the Los Angeles contract is “a devastating step,” said another contractor, who spoke on condition of anonymity.

The joint venture is controlled by the J. F. Shea Co., a privately held, Walnut-based concern that is one of the veterans of the U.S. heavy-construction industry. Shea helped build what was then called Boulder Dam, on the Colorado River southeast of Las Vegas, in the 1930s.

Shea, the company’s president, also is well known for his philanthropy. Shea and his wife, Dorothy, are major contributors to the Catholic Archdiocese of Southern California and are longtime friends of Los Angeles Mayor Richard Riordan.

Times staff writer David Willman contributed to this story.